​Saudi Arabia expected to keep oil policy unchanged

The current rise in oil prices will be short-term as Saudi Arabia is unlikely to reconsider its oil policy after the death of King Abdullah, financial experts told RT.

“The Saudi king has not been taking an active part in running
the country for several years, so the market knew that the king
was old, and now there are no expectations that Saudi Arabia will
change its policy,” Valery Nesterov, oil and gas analyst at
Sberbank-CIB, told RT.

Oil rose on the news of the Saudi king’s death with March futures
for Brent and WTI adding 3.1 percent and 2.6 percent,
respectively. Brent crude reached $49.69 a barrel on London's ICE
Futures Exchange at 8:40 AM GMT. The price for March futures of
WTI crude oil went up to $ 47.28 per barrel on NYMEX.

However, Nesterov said such a leap should not be considered as a
long-term positive trend.

“Market reaction to the news of the Saudi king’s death was
pretty moderate,” he said. “There’s no huge optimism
that the prices go up significantly.”

Nesterov said one of the key reasons for oil’s volatility is
shale production in the US. After OPEC decided against cutting
oil production, “the cartel and Saudi Arabia lost the key
leverages on the oil market,” he added.

Analysts from Finance Freedom agree that the shift in Saudi
Arabian power won’t have any effect on the price of oil.

“We believe that short-term prices may rise by 5-7 percent,
but the policy of Saudi Arabia will remain the same, which means
there won’t be a radical growth in oil prices in the coming
months,” they said in an e-mail, adding that was no surprise
to market participants.

Saudi Arabia is the largest oil producer in OPEC and the world,
and accounts for about 30 percent of the cartel’s output. “In
the past six months it’s been officially pursuing the policy of
squeezing shale producers out of the market and the monarch’s
death is unlikely to change it,” said FOREX CLUB analyst
Valery Polkhovskiy.

On January 6 Crown Prince Salman bin Abdulaziz said in a speech
on behalf of the king he intended to continue his policy.

On Thursday HSBC released an economic outlook for the economies
of oil exporting countries in 2015 where its experts predicted a
budget deficit in Saudi Arabia of around 11 percent.

“However, given the volume of the country’s foreign reserves,
that doesn’t pose any significant threats to Saudi macroeconomic
stability and does not require any emergency response,”
Polkhovskiy commented on the statement.